Edward Ring, Founder and CEO, New Standard Equities

Six Questions About California Eviction Moratoriums With New Standard Equities Founder and CEO Edward Ring

by Channing Hamilton

Multifamily & Affordable Housing Business: How did each jurisdiction define the moratoriums in California? Did it vary?

Ring: The eviction moratoriums began in California during the outbreak period of COVID-19. The immediate response from state and local governments was to prevent landlords from evicting non-paying residents via an ‘emergency order’ declaration. Each jurisdiction settled on their own methodology and created a near-impossible set of rules for landlords who operate in multiple cities. 

Often, a county had a set of rules, the city had a set of rules, and the state had its own rule. As the pandemic wore on, each jurisdiction also settled on how tenants could get rental assistance, with the largest program coming at the state level using the state’s allocation of federal relief funds. However, because each jurisdiction had its own rules, some areas of the state were more challenging than others.  

For instance, in Alameda County, landlords were prevented from even discussing rental assistance options for their residents. In other areas, a landlord could apply for assistance on behalf of the resident. Furthermore, and this is the most egregiously botched policy, a resident could apply for housing assistance and get rejected (potentially because they couldn’t prove they were adversely affected by the pandemic), yet landlords were still unable to evict those residents for non-payment. In other words, the state effectively proved the resident was unaffected, yet landlords couldn’t use that, in effect, ‘legal finding’ and evict that resident.

We are still suffering from millions in unpaid rent, but we have very little recourse. Taking a resident to small claims court is costly, and the owed balances are typically $10,000 up to $90,000. 

MAHB: So the public isn’t aware of how these protections have impacted the commercial real estate industry?

Ring: The public has no idea that the system the government set up was so badly flawed. Many heard the words from the governor early on in the pandemic that landlords would be made whole; they heard from tenant activists that the ‘rent is too damn high,’ and the public never hears that at many communities, as many as 15 to 20 percent of the residents stopped paying their rent, with little to no repercussions. 

The public also doesn’t understand that not paying rent is the same as walking into a grocery store and walking out with a basket full of food without paying; or sitting at a restaurant and skipping out on the bill after enjoying their meal.

MAHB: How has the fallout from lost rent specifically burdened operators? 

Ring: In our markets, we lost roughly 20 percent of our NOI. Remember, it’s impossible to adjust expenses to compensate for lack of revenue. Those people are still living at the property, and we still need to fix their toilets and provide whatever other services they need. We also still need to pay our property taxes and mortgages. In not a single jurisdiction did the county offer up a discount or delay on the tax bill due to non-rent-payers.

MAHB: Did the moratoriums primarily impact affordable housing or B or C class owners, or were the effects felt all over the spectrum of both renters by choice and by necessity?

Ring: The moratoriums affected all owners in every asset class. At some luxury buildings, the residents were astute and stopped paying rent at even greater rates than at Class B and C buildings (despite holding work-from-home professional jobs). Perhaps the only difference is that if the upper middle-class renter is paying $4,000 for a luxury unit, they may have the ability to pay the back rent owed provided they kept the cash in some kind of savings account vehicle.  

The Class B and C resident likely enjoyed their surplus cash on other items that were perhaps unattainable prior to the ‘free rent’ courtesy of the moratoriums. Now, that said, certain folks did in fact lost their jobs and couldn’t pay their rent and the protections from the moratorium kept them in their units. And they applied for rental assistance and the landlord was eventually made somewhat whole.  

But I’d guess that a very small percentage of people fell into that bucket, particularly following the advent of vaccines and back-to-work policies right around January 2021 or so. It would be interesting to compare the California unemployment figures with the COVID-affected claims processed at Housing is Key, which was the state rental assistance program. You’d have to adjust for timing differences, but my guess is that the unemployment rate fell at a far faster pace than did total claims for rental assistance, including those that were eventually rejected.

MAHB: Is there any evidence that the rent-collection problems are directly driving away investors from California? 

Ring: There is no quantifiable data here as ‘investor’ is itself a very broad term. Private high-net-worth investors are largely uninterested in investing in assets in California, but that is due in part to the moratorium behavior, in part to the onslaught of renter-protections, such as rent control, background checks and security deposit limitations. That said, those investors also don’t understand basic macroeconomics.  

While those items listed above are certainly frustrating, other aspects of California’s economy, — including in-migration, knowledge economy global leadership and strict environmental controls that curtail development — are reasons why investing in California is still a phenomenally good bet. There is nowhere else in the country, with the exception of New York City, that attempts to solve their housing crisis with Band-Aid fixes like rent-control measures.

The only way to keep up with demand is to increase supply. This is the go-to activity in more ‘of the moment’ investment areas such as the Sun Belt or Nashville. In other words, as investors flock to high-growth cities, so do developers. Therefore, what begins as a high-growth gambit, could wind up being an investment in an over-supplied market. It is very tough for an asset to recover when the systemic problem in a market is that there’s too much housing. This will never be a problem in California.

MAHB: Can you quantify how the vacancy rate rose following the moratoriums? Any statewide figures?

Ring: Anecdotally, with anywhere between 5% and 10% non-payers facing evictions and with landlords refusing to rent to residents with non-payment in their credit history, occupancies in the state have fallen. In order to back fill those vacancies, rent has fallen on a year-over-year basis. That, along with rising interest rates, has impacted property values.

Compiled by Lynn Peisner. Encino, California-based New Standard Equities is a real estate investment management firm that specializes in the acquisition and operations of multifamily properties located throughout the Western U.S. Ring founded the company in 2010.

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